How Cognitive Biases Can Impact You Financially

I am committed to giving my clients the tools that they need to manage their finances and credit. In this blog, I will discuss the various biases that have a financial impact. Education is key to your financial success. Keep reading to learn more about cognitive biases.

Anchoring Bias

The anchoring bias is a purchase decision based on an original price. An item that was marked down from $500 to $150, sounds like an amazing price, but only because of the original $500 anchor price. Similar items may be priced elsewhere at $150 or less. The “marked down” price is not such a bargain. Stores will often raise their “regular” prices right before a sale to make the sale even more enticing. The best way to overcome the anchoring bias is to do more research and replace that initial “anchor” number with other numbers that make more sense.

Bandwagon Effect

Everyone has heard the phrase “jumping on the bandwagon.” This is when you go along with the crowd instead of making your own decisions. The bandwagon effect can lead you to buy products that are popular but are not the best value. Technology is a prime example of the bandwagon effect. People often rush out to get the latest TV or cell phone because everyone else has it. Be sure to do lots of research before making any financial decisions. This will help you decide on the best choice for you – not just what everyone else is doing.

Choice Supportive Bias

Some of my clients feel remorse about some of their past financial decisions. When people experience buyer’s remorse they will often go out of their way to convince themselves it wasn’t a waste at all. People often convince themselves that they really did need it, and it was completely worth the money. This kind of argument is called choice-supportive bias. Defending a bad buying decision can often cause people to make that same decision again. One way to get around this bias is to treat each decision as a brand-new one. Don’t try to justify the choice you made last time. Focus on making the best financial decision now.

Ostrich Effect

The ostrich effect is when someone ignores a situation in hopes that it will go away. Some people do this when they are faced with financial issues like reducing their debt. It is easy to just put your bills away in a drawer or file in hopes the bills will just go away. Of course, doing this just makes the problem worse. Overcoming the ostrich effect can be difficult. It is much easier to ignore your financial problems, but that will just make the problems worse in the long run. Once you realize that you have a financial problem it is never too late to take action to remedy the situation. Sometimes bankruptcy is your best and only option. It is important to contact an experienced bankruptcy attorney so that they can guide you through the process to help get your life back on track.

Now that you know about cognitive biases, you have a better understanding of how they can impact your finances. If you are considering filing for bankruptcy it is important to contact an experienced attorney. I am able to guide you through the process of filing for bankruptcy to get your life back on track. Schedule a consultation today to learn how I can help you regain control of your financial future. There is life after bankruptcy, and it starts here.

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